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Working with partners to identify efficiency savings in PFI contracts

There are currently 24 operational PFI projects run by LPP members with a remaining unitary charge commitment of just under £17.7bn and a lifespan of up to 50 years, ending in 2050. The annual unitary charge for 2014/15 was £590m and for 2015/6 is £607m. In the current climate, with continued pressure on budgets, it is right that there should be a sustained focus on maximising efficiency savings from operational NHS PFI contracts. Without this focus there is a £17m cost pressure for our members before we have even started.

Working with partners to identify efficiency savings in PFI contracts

The PFI hospital contracts are awarded and managed by local trusts. The contracts use private funding to build, operate and maintain hospital buildings.

In June 2014 HM Treasury (HMT) published its Code of Conduct for Operational PFI/PPP Contracts. The Code follows on from HMT guidance issued in 2011 ‘Making Savings in Operational PFI Contracts’ which pulled together a number of common sense ideas to help public bodies make cost savings. With so much money at stake, the new Code of Conduct is intended to act as a catalyst to move that process on to achieve real savings. 

PFI has been criticised in recent years for its high costs. This is one reason why the Government decided to focus on making savings in existing schemes to the tune of £1.5 billion.

LPP is here to help

The size and complexity of PFI deals provides a management challenge to NHS organisations, and these contracts need to be closely examined to make sure that the NHS is getting best value. With the support of specialist external advisers, some trusts have already looked hard at their existing PFI arrangements and sought to do something that drives out efficiencies and makes savings. In some cases they have had positive engagement with their private sector partners and in others less so.

There are a number of consultancy companies which offer to provide specialist support to trusts to undertake savings reviews.  As with all external advisers, the services provided come at a cost. The consultancy fee is generally an agreed percentage of the actual savings identified rather than delivered which may result in a relatively high fee compared to the resources and time expended by the consultancy company.

Before considering the use of external consultancy companies, members should consult with LPP - LPP can provide help and advice to develop a plan to realise significant savings through the review and renegotiation of contracts, capturing lessons learned from other trusts and public sector bodies. LPP can provide a flexible team of people with commercial experience to provide support and advice and to disseminate best practice and lessons learned.

Savings opportunities

Pilot saving reviews undertaken so far by public sector authorities including NHS trusts support the HMT view that in many cases average savings of around 5 per cent of the annual unitary charges are achievable. In the main these savings come from effective application of existing contract provisions, optimising the use of contract assets, and reviewing the specification of soft services to realign with the service requirement.

Our approach

As part of a PFI contract savings review, LPP will:

  • Review contract management arrangements, including resources, governance, systems and controls
  • Identify savings through a thorough analysis of the contract
  • Help the trust to negotiate (with support from legal advisers) to ensure the savings identified in the review are delivered.

PFI service - questions and answers

How do I commission the services of LPP to undertake a PFI savings review and how much will it cost? 

The exact terms of each commission will be agreed on a case by case basis and will reflect the particular project and the needs of the Trust. LPP is not looking to make a profit from providing these services but support their memebers is deliver cost benefits.

The first step is to contact LPP for preliminary ‘without commitment’ discussions. The point of contact is Edward James, Estates, Facilities and Professional Services Workstream Lead.

At what stage should I approach LPP?

 

You should aim to get LPP involved as early as possible once a decision is taken to conduct a PFI contract savings review or early stage in the planning stage of benchmarking and market testing exercises. To achieve efficient outcomes, it is essential to devote sufficient resources to the savings review and benchmarking/market testing process from the outset.

What is different about LPP compared to consultancy firms which offer to provide PFI savings reviews?

There are a number of consultancy companies which offer to provide specialist support to undertake savings reviews.  As with all external advisors, the services provided come at a cost. The consultancy fee is generally an agreed percentage of the actual savings identified which may result in a relatively high fee compared to the resources and time expended by the consultancy company.

LPP is different from private sector consultants – LPP is an NHS membership organisation, funded by and working for the NHS, it is not a commercial profit-making organisation. Unlike consultancy firms, LPP will only seek to recover the costs incurred in providing trusts with the necessary help and support. All of the financial savings achieved will go to the trust.

What is the potential to achieve savings in operational PFI contracts?

Pilot saving reviews undertaken so far by public sector authorities including NHS trusts show that average savings of around 5 per cent of the annual unitary charges are achievable. In the main these savings come from effective application of existing contract provisions, optimising the use of contract assets and reviewing the specification of soft services to realign with the service requirement. 

The size and complexity of PFI deals provides a management challenge to NHS organisations, and these contracts need to be closely examined to make sure that the NHS is getting best value.

What is the willingness of PFI commercial partners to work with NHS organisations to deliver efficiencies?

HM Treasury published the Code of Conduct for Operational PFI/PPP Contracts in June 2013. The Code of Conduct sets out the best practice on which the public bodies and their project partners voluntarily agree to identify and make efficiencies and savings in operational contracts.  For example, it promotes collaborative working between the parties, such as providing a single local point of contact for all parties on each project.  The Code also contains commitments to achieve transparency, such as updating partner parties on a day-to-day basis on costs and, where appropriate, any changes in ownership structures.

When the Code was first launched it had just over 50 signatories, there are now around 180 signatories. This manifests a stronger willingness and need from public sector bodies and their PFI partners to work together to deliver efficiencies and acceptance of this approach from the market.

02-03-15    Estates Facilities

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